Monthly Archives: July 2016

VW: The Challenge of Whistleblowing

VW: The Challenge of Whistleblowing

The following guest post is by Wendy Addison.

A hand shot up from the lecture hall:  ‘I don’t understand’, a young economics undergraduate said, looking perplexed, ‘surely a company’s executives would want to know about unethical practices in the organisation?’

I was lecturing on Corporate Governance at Warwick Business School, and had just introduced the topic of Whistleblowing and Speaking Out to the students.  Taking my time in responding, and conscious of holding the tension between what is currently the dominating response to whistleblowers, and what it needs to be, I balanced my answer by challenging them with a set of questions.

Utilising the Volkswagen case as an example, we debated and explored why no one had challenged the cheating devices in such a large, multinational corporation.  There was no doubt that Volkswagen would have extensive policies and procedures in place for anti-corruption, bribery and whistleblowing. Yet the deception still occurred, only being discovered by accident, when researchers at West Virginia University were testing fuel efficiency under on-the-road driving conditions. It was the researchers who passed on their discovery to the regulators.

I focused upon how employees at Volkswagen might have experienced the context, the culture, and the systems at Volkswagen. Perhaps this would shed some light on why there were no whistle-blowers prior to detection.

Setting the scene, I reminded the students that VW bristled with unbridled confidence in its technological prowess. They were headed up by larger-than-life CEOs, who had been driving the organisation to become the largest company in their marketplaces. With a workforce of 593,000 employees, the company had exhibited the kind of pride that often comes before a fall. A 2014 Television advert reflected this self-conscious righteousness. Hubris had given wings to what can only be described as a regulatory heist.

Here are some of the deep-dives I did with the students:

  • Scrutinizing Volkswagens’ complicated and questionably governed company gave the students added insights into the conflicts of interest of some board members.  There were incestuous relationships with the vast majority of board members being insiders, as having close ties to existing interest groups. I asked the students to imagine themselves as employees of Volkswagen, having knowledge of previous scandals such as their rigging of the test for auto emissions a few years earlier, where the penalty was only a mild slap on the wrist. As a loyal, long term employee, you also knew about Volkswagen installing a ‘defeat device’ back in 1973, incurring a civil penalty of $120 000.00. So, what kind of message do you get with this historic oversight of misconduct and even more so, with those outcomes? I asked the students, if you were thinking of whistleblowing, would you ask yourself if your disclosure would attract stronger penalties?
  • My next challenge was to get the students to consider whether the attempts of VW executives to throw various senior engineers under the proverbial bus was a new behaviour or something they were practiced and well versed in. Was this action a way to deflect closer scrutiny of its marketing, financial, and sales executives?   I challenged them to think, does knowing that blowing the whistle might result in you being thrown under the bus help or hinder your ability to speak out?
  • I suggested that they think about historic cheating, and how bending the rules had been normalised as business as usual at Volkswagen. In other words, was the labelling of misconduct ambiguous?  Did the slippery slope of moral elasticity and ambiguity of wrongdoing result in a corrupt system, enticing and allowing corrupt behaviours?

In closing my lecture, I suggested that the current narrative of ‘if you see something, say something’ is hopeful at best. We all want to believe we will and can speak out when observing misconduct. We want to believe our message will be received and acted upon.  We want to believe in a fair and just world. Whilst whistleblowing presents the best and sometimes only solution to many cases of organisational wrongdoing, we need to better understand the conditions that encourage and discourage it in order for it to be a robust avenue to mitigate  corruption. It clearly failed at Volkswagen, but what of the lessons learned?

Wendy Addison is the CEO of SpeakOut SpeakUp. Wendy brings a unique perspective, rooted in her own personal experience of having secured justice in an eleven-year battle against corporate corruption in the case known as South Africa’s Enron, the biggest corporate disaster in South Africa’s history. She is now  a lecturer at Surrey University and Warwick Business School, is a contributing member of the UNCAC Coalition, the Corruption Research Group of the Surrey University and sits on the advisory board of the Whistleblowing Research Unit which runs the International Whistleblowing Research Network at Middlesex University in the United Kingdom. Wendy  can be reached via her website here

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VIDEO: The Terrain of Global Anti-Bribery Compliance Challenges

In the second part of their interview, Alison Taylor, Director of advisory services at BSR, a non-profit consultancy and company network focused on sustainability and CSR, and James Cohen, an expert on anti-corruption, international development, and security sector reform, share their reflections on a co-authored blog piece titled “An Organizational Response to Global Compliance Challenges.”

In this video, they address:

  • Why organizational culture is such an area of focus in the anti-bribery compliance discourse.
  • How culture and leadership influence behaviors.
  •  The challenges and obstacles to Anti-Corruption literacy.
  • The role of technology in  keeping up with information flows, and how it is relevant to anti-corruption by connecting people across cultures and increasing awareness of corruption and the impact of illicit financial channels.
  • How the Panama papers have educated societies about shell companies and beneficial ownership,  by focusing upon how corrupt money travels globally, and how it impacts populations along its path.
  • How are companies managing supply chain risk.
  • How can training be used as a tool to move anti-corruption compliance away from a box-ticking exercise and towards a  values-based training mission.
  • What might it mean to look beyond a standard legal view of corruption into its wider impact, and how that might influence audit and compliance initiatives.
  • Why anti-bribery due diligence needs to be more than a pin point process.
  • What is a clear eye view of corruption risk?  The importance of understanding the influence, impact, agenda and relationships of third parties among various stakeholders.
  • What are the hubs and spokes of corruption?
  • Is FCPA due-diligence in crisis?

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VIDEO: Hyper-Transparency and Corporate Anti-Corruption

In part one of a two part interview, Alison Taylor, Director of advisory services at BSR, a non-profit consultancy and company network focused on sustainability and CSR, and James Cohen, an expert on anti-corruption, international development, and security sector reform, share their personal views of how recent data leaks have impacted our awareness of global corruption issues, and how that might shape the future of compliance programs.

Issues addressed in this seventeen minute interview include:

  • How 2016 has been a pivotal year for transparency.
  • The impact of large scale data leaks on how we treat and manage information.
  • How risk profiles can’t be ignored in an anti-corruption program, as beyond due-diligence to prevent bribery.
  • The global connectivity of corruption as impacting social awareness.
  • The wider impact of corruption on corporate investment.
  • The significance of public ‘optics’ as to where business is conducted, and  the role engaged intermediaries.

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An Organizational Response to Global Compliance Challenges

An Organizational Response to Global Compliance Challenges

The following is part II of a guest post by Alison Taylor and James Cohen. Part I can be found here. 

A consensus has emerged as to what an effective anti-corruption compliance program looks like – its components and success factors. At the same time, it has become clear that compliance programs don’t exist in a vacuum; the effectiveness of any process is driven by its surrounding culture. Regulators and compliance teams are drawing inspiration from leading academic thinking on behavioral risk to frame their approaches and are finally moving ethics to center stage. This means moving on from “rogue employee” theories of how corruption occurs while considering the role played by strategy, leadership, incentives, and goals in inadvertently socializing corrupt practices. While compliance officers can tackle some of these issues via tools to measure culture and employee engagement, they also need to work with other teams to drive values and ethics throughout a business. Training on accountability and anti-corruption measures need to be tied to the achievement not just of sales but corporate values, too. Frontline sales and operations personnel need to know how to mitigate corruption risks, as well as to know why mitigation is crucial to a sustainable and ethical business model.

The ethical challenges facing companies today go far beyond the traditional control remit of compliance teams. Companies need to consider organizational context, as well as emerging corporate responsibility issues such as human rights, climate change, and inclusive economic growth. It all speaks to a future in which those charged with compliance and ethics functions do not simply police the enforcement of existing rules but are independent, empowered, and ready to meet the most pressing challenges now facing enterprises. Companies that do this will be rewarded with more engaged, purposeful teams, enhancing their ability to retain and motivate younger employees. Compliance officers will increasingly become agents of change, taking ownership of company values and culture.

Supply Chain Oversight Gets Serious

The effectiveness of due diligence and supply chain oversight, much of which relies on contractual provisions and audit models, is increasingly being questioned as labor rights violations continue to be revealed. So far, public concern and business action has focused on such specific issues as conflict minerals, apparel manufacturing in Asia, and forced labor in the Middle East. This reflects a response to specific rights violations among workers in these supply chains. Comparable incidents are certain to occur in the future, and these will lead to focused, issue-specific consumer scrutiny, pressure for industry collective action, and targeted regulations.

The current approach of self-regulation in supply chains is likely to become untenable in the face of increasing transparency and awareness. Governments may seek a greater role in the regulation of corporate supply chains and the expectations placed on companies. The California Transparency in Supply Chains Act and the U.K.’s Modern Slavery Act represent early moves toward the same standard. Given the immense practical complexity that this presents for businesses, we might expect to see the emergence of an “adequate procedures” framework analogous to the emerging global consensus on anti-corruption compliance. A structured approach to identifying, managing, and mitigating supply chain risk will not protect companies entirely. Some leading companies are already taking a more proactive approach to transparency in this area by disclosing identified problems and driving cooperative approaches to help tackle them.

Toward Systems Thinking

Corruption has long been approached with the implicit attitude that it is a victimless crime that simply greases the wheels of bureaucracy. This view is quickly evolving now that it has become impossible to ignore the links between corruption, poverty, conflict, and human rights violations. Because of corruption, kleptocratic regimes that abuse human rights and perpetuate conflict as a means to retain power can funnel their money offshore and sustain illicit revenue. As the links between corruption and conflict grow more prevalent, companies may come under increasing pressure from governments and civil society to pull out of projects that sustain corrupt regimes.

Corruption-risk assessments need to move on from approaches designed to detect the risk that operational bribes will be paid by employees and third parties. Companies will need to consider the wider systemic context in which they operate, which means understanding impact as well as risk. Human rights impact assessments will become standard practice. The mapping of business and political networks will help companies determine how their business partners might be helping to sustain corrupt national systems, thereby enabling them to eliminate such relationships.

Compliance and ethics departments will need to incorporate into their strategies the connections among corruption, human rights violations, and the conflicts they drive. They must underline not just the legal ramifications of corruption but its larger impact. As more governments, multilateral organizations (such as the UN), and civil society groups embrace the need for cross-sector responses to combat corruption, companies should expect to be drawn into participating in expansive anti-corruption networks.

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Global Trends and Business Ethics

Global Trends and Business Ethics

The following is part one of a two-part guest post by Alison Taylor and James Cohen.

2016 is only half-complete, but it’s already been a pivotal year in ethics and compliance. The Panama Papers and Unaoil data leaks have ushered in a transformed transparency environment. Due diligence approaches have come under particular pressure as it came clear that standard tools and approaches are not fit for purpose. Leading thinkers in compliance have called for Compliance 2.0, a boost to the power and authority held by compliance functions, to match its rising accountability. Corporate responsibility and ethics teams are working more closely together in recognition that issues of strategy, incentives, and culture require organizational change, as well as thinking and approaches that cut across internal teams. Governments, the media, and civil society organizations have become increasingly aware of the systemic drivers of corruption.

With so much going on, this is a good moment to pause and consider the future of business ethics. What will keep the compliance and ethics officers of the future up at night? We will present six ideas over two articles. Part One, here, deals with emerging global trends, and Part Two will focus on organizational responses.

Hyper-transparency and its Consequences

Today, Facebook has over 1 billion users, approximately two-thirds of the world’s population have mobile phones, and one-third have access to the internet. By 2020, 80 billion devices will be connected to the web. Amid all this, the media industry has fragmented, public debate has become less top-down and more diffuse, and both companies and governments have had to accept that their ability to control reputation has become greatly reduced.

This new environment raises complex, morally fraught questions around privacy, surveillance, transparency, and freedom of expression. Companies will learn to behave as if everything they say and do may become public, but they will expect the same of employees. Employee surveillance and monitoring will become standard practice as companies seek to detect behavioral risk before a violation can occur. Big data solutions to measuring third-party risk, emerging threats, and employee compliance are mushrooming. The vast expansion of interconnectedness will transform how companies manage and engage with their external and internal stakeholders. Information can no longer be reliably distributed over time; nor can its content be easily controlled. This will require rethinking approaches to reputation, stakeholder engagement, and values.

Governments, too, are increasingly under pressure to commit to such global transparency initiatives as the open government movement and the Extractive Industries Transparency Initiative (EITI). One high-profile transparency initiative, particularly in the wake of the Panama Papers, is the creation of national corporate ownership registries. While these tools have shortcomings, companies should expect the trend toward transparency and accountability initiatives to intensify with each global corruption scandal. They should also expect more OECD countries to bolster their commitments to the Convention on Combating Bribery of Foreign Public Officials. It will be important for companies to give honest feedback regarding growing government and civil society initiatives, as well as to recognize that standards are changing. Neither self-assessment nor box-ticking will endure.

Individual and Collective Empowerment and Rising Expectations

Today’s headlines are focused on inequality and political populism, with executive pay and compensation serving as a particular pressure point for companies. But there is another underlying story: the growth of the middle class. By one estimate, the global middle class will increase from 1.8 billion people in 2009 to 5 billion in 2030, a growth trajectory that is concentrated in the Global South. This shift represents a momentous point in the story of human development; for the first time in recorded history, a majority of the world’s population will NOT be impoverished. Also, it is estimated that by 2030, 90 percent of the world’s population will know how to read. Improved living standards and education levels will create an unprecedented level of individual empowerment, along with rising expectations from business and government. We are already seeing this play out in soaring popular anger about corruption in countries as varied as Brazil, India, China, Russia, Turkey, Malaysia, and Indonesia. Corruption provides a powerful explanation for the misuse of public funds and the failures of government to meet the public’s aspirations for more just and prosperous societies. This is becoming an issue in the Western world, too, particularly given the lack of benefits from globalization.

Individual empowerment is also bolstered by collective action. There is no longer such a thing as a remote region in the world. Through social media, citizens in the most distant locations can galvanize around issues or work together on hackathons of open government data. Such endeavors, in turn, create evidence for action against those regarded as responsible for breaches of ethical and accountable corporate practice. Citizens in highly corrupt countries once generally lacked the tools to confront corrupt governments and corporations, but this is changing. As “anti-corruption literacy” grows among the public, companies should expect more of their business dealings to be part of the open data that the public reviews. This applies to any global business: Citizens around the world are tuning into how international illicit financial flows work.

We can expect demands for the fulfillment of individual human rights to continue. This will lead to an increase in public expectations from government and business, more powerful advocacy for social, economic, and environmental justice, and the creation of a more vibrant and extensive civil society. The role of the business sector will change as expectations around its responsibilities shift. The standard, outdated concept that the purpose of a corporation is to “drive shareholder value” may be replaced by broader concepts of stakeholder trust and “shared value.”

The Demographic Shift and the Automation of Work

The world is getting older, as illustrated by two statistics. In 2012, the size of China’s workforce reached its peak, and today over 60 per cent of the world’s population lives in countries in which the fertility rate is below the replacement rate. This aging process poses sweeping social and economic implications, including a decline in the number of workers available to business and an increase in local communities’ need for (and demand for) services associated with an older population.

Countering this overall decline in the workforce will be the expected sharp reduction in the need for workers, owing to the automation of jobs. Companies across various industries are embracing technology to improve operational efficiency, conserve natural resources, reach new markets, and support innovation. These forces, though they can be powerful drivers of economic opportunity and improved well-being, carry a host of risks, most notably the elimination of large numbers of jobs. Many experts cite labor’s declining share of GDP in many advanced economies, structural unemployment, and rising economic inequality in many countries as indicators that a transformation in the labor market is already underway, with technology as a key contributor. Many jobs will be eliminated and others will be created. The effects of this transformation will vary enormously across countries and demographic groups, with risks of widespread societal and political disruption in a number of areas.

The complex interaction between these two trends makes predicting the consequences for society particularly difficult. Still, it is likely that in an era of reduced employment opportunities (and reduced job creation by business) the pressure for equitable sharing of value will be intense. This will place a premium on the abilities of business to support local communities via investments, local contracting, and tax revenues – and to explain the value of its support. Communities of the future may require far more extensive provision of services and facilities to support aging populations. The role of business in supporting more inclusive economies will be reexamined.

Alison Taylor is the Director of Advisory Services for BSR (Business for Social Responsibility). Her bio can be found here. Also, here is a link to my video interview with Alison on “How Organizations Impact Corruption.” 

James Cohen as an expert on anti-corruption, international development, and security sector reform. He is based in Washington DC, and can be followed on Twitter at @JamesCohen82.

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